Informal Recycling Sector’s Formalization Toward a Circular Economy Transition in Indonesia: a Critical Review

The recycling sector in Indonesia, characterized by a high level of informality, continues to raise considerable social, economic, and regulatory concerns. Understanding the drivers of informality within this sector is essential for designing integration policies and formalization scenarios that are socially inclusive and suit all the needs of key players across the value chain. However, prior research on this topic remains diverse and fragmented, particularly in terms of theoretical frameworks, drivers, integration models, and constraints of informal recycling sector (IRS) formalization in the Global South contexts. This study conducts a systematic review of the theoretical frameworks, factors that drive informality, strategy, and barriers to integrating the IRS into the formal waste system, focusing on Indonesia. A systematic literature review protocol was followed to identify the most recent and relevant papers, and a critical review was performed of the major themes from 31 selected papers published from 2010 to 2026. The findings indicate that informality in this sector is shaped by interconnected micro-, meso-, and macro-level factors, including economic necessity, flexibility, and state capacity, while social stigma, locked-in relationships, and insufficient regulatory support impede attempts to formalize their work. Theoretically, this review contributes by integrating insights from informality studies, inclusive circular economy (CE), and just transition perspectives to contrast everyday realities and formalization narratives within CE transition in the Global South contexts. In addition, the study proposes an integrated conceptual framework combining insights from informality studies, inclusive CE, and just sustainability transition perspectives to enhance current understanding of formalization dynamics in this sector.